#929, Friday, December 19, 2003

Business

Russia Forges Own Ethics

By Vanessa Bittner
STAFF WRITER

The title of the seminar "Corporate Governance: Luxury or Necessity" pointed to trade-offs connected with putting business ethics into practice.

The seminar was co-sponsored by the Center and the U.S.-Russia Business Forum and held at St. Petersburg University's School of Management.

Prof. Godwin Wong of the Haas Business School at University of California Berkeley shed light on the U.S. experience of corporate governance.

As Prof. Wong pointed out, the Sarbanes-Oxley Act - adopted in 2002 in reaction to the Enron and Arthur Andersen scandals - is a double-edged sword.

"All publicly traded companies are suffering because they have to spend several million dollars just to satisfy the act," Wong said.

He was quick to caution against wholesale adoption of an American model.

Russia must go "the way that will be most comfortable and suitable for [it]," he said, with the eventual goal being "to go public in foreign markets and attract investors."

But Russia is far from instituting a mandatory law for corporate governance. The existing Corporate Governance Code for the Russian Federation is only recommendatory in nature.

This is because there are few small investors in Russia, as opposed to the United States, where legislation is needed to protect individual investors.

In addition to legislation, Russian participants highlighted many obstacles to the rise of a culture of corporate governance in Russia, such as mentality and the lack of independent directors.

Denis Kuzin, of the Association of Independent Directors, for example, noted that corporate governance is not an end, but a means of capitalization and achieving transparency for a company. "The more IPOs there are in Russia, the better indicator that Russia is on the Western track, or the generally accepted track ... ," Kuzin said.

Differences in mentality include the concept of whistleblowing named by the American professor as a positive element of corporate governance. As Kuzin said, American whistleblowing could never be implemented as a mechanism of corporate governance in Russia because it is not seen as a way of ensuring transparency, but as snitching.

Insider trading, one target of the Sarbanes-Oxley Act, is also viewed differently in Russia.

As one businessman put it, how can business be expected to implement corporate governance measures in a country where governors and legislators are elected by affiliation with the president's party?